Rent out current property - buy 2nd property to live in?

Brand0

The title says it all really. My postition, in brief, is thus:

Own a house which shrank around the growing family and currently rent it out as well as renting ourselves. Property has c£65k left on mortgage and is worth around £210-220k today. We want to buy a second home, to live in, keeping the first house to help towards the mortgage in the short-term, and to keep as nest-egg longer-term.

The mortgage situation flatters us right now as the rental income is almost twice the mortgage (c£5oopcm). We have no savings, but our credit rating should be good. The type of house we want would cost at least £250k - perhaps as much as £275k.

How possible is this and how would I go about it? When I look at the figures, they scream out that it should be pretty easy, but there must be something I've not considered.

Cheers.

00ec25

Brand0 wrote: »

We have no savings, .

Brand0 wrote: »

but there must be something I've not considered..

Where are you going to get the money for the deposit from?
have I understood you correctly - you will remortage existing property to release (210 - 65) = 145 equity, and use that for the deposit? This will have to be on a BLT mortgage so reduces your £500pcm margin a bit

you plan to buy at 250 so will need a further (250 -145) 105 which is therefore not available in the existing property so you will need a separate residental mortgage on the new place at approx LTV 42% (105/250).

So far so good, and acknowledging you have experience of renting so know what can go wrong, but the lack of any reserves would worry me as you have no source of funds for any emergency other than by further borrowing,. Also of course you will incur some upfront fees which you will take from the equity release amount.

alared

Brand0 wrote: »

When I look at the figures, they scream out that it should be pretty easy, but there must be something I've not considered.
Cheers.

Maybe you should consider living in your own house and paying that off first instead of posting impracticle nonsense.

franklee

Brand0, You could look into which mortgages you could get on each property and take it from there. You would need to keep some equity in the let property at least 15%, maybe more depending on the loans on offer.

So assuming 15% deposits as a minimum:
Old place: £210K. Minimum deposit needed 32K.
New place: £250k. Minimum deposit needed 38K.
Total deposits 70K.

Equity: 210-65=145k.

So there looks to be enough cash swilling about in there, the excess could be used for bigger deposits depends on what deals are available.

There would need to be enough income to qualify for both loans, the income being your salary for your home and rent for the let one. I'm not sure what size loan 500pcm of rent would support.

The rent looks on the low side, only a yield of about 3% on the 210K tied up in the property before costs are taken into account.

That's without taking any house price falls into account.

Am not sure why it looks a good proposition.

bristol_pilot

It's not very tax efficient. To offset mortgage interest against rental income, they need to be on the same property.

socrates

franklee wrote: »

I'm not sure what size loan 500pcm of rent would support.

From my understanding the rent is £1000 pcm and its the mortgage that is £500 pcm - but I agree it is ambiguous

franklee

bristol_pilot wrote: »

It's not very tax efficient. To offset mortgage interest against rental income, they need to be on the same property.

True but can you get a BTL mortgage with less than a 15% deposit these days. I know you could before the credit crunch but I thought Prudence was back in fashion now. Still shopping round for mortgages would find that out.

franklee

socrates wrote: »

From my understanding the rent is £1000 pcm and its the mortgage that is £500 pcm - but I agree it is ambiguous

Oppps Well a 6% yield looks better if it can be got. My landlord gets 4% but rents are falling round here so 3% is not unknown. Depends where the OP is I guess.

alared

The papers are full of BTL landlords getting repossessed because they can`t find tenants to pay rent which is really their mortgage payments.
I travel up and down the country and there are more "to let" signs than "for sale".

The property market is still a long way from the bottom.
Another million to be flung out of work yet.
This government`s great scheme to help people stay in their own homes and not get repossessed has so far helped only ONE family.

Fire_Fox

Brand0 wrote: »

The title says it all really. My postition, in brief, is thus:

Own a house which shrank around the growing family and currently rent it out as well as renting ourselves. Property has c£65k left on mortgage and is worth around £210-220k today. We want to buy a second home, to live in, keeping the first house to help towards the mortgage in the short-term, and to keep as nest-egg longer-term.

The mortgage situation flatters us right now as the rental income is almost twice the mortgage (c£5oopcm). We have no savings, but our credit rating should be good. The type of house we want would cost at least £250k - perhaps as much as £275k.

How possible is this and how would I go about it? When I look at the figures, they scream out that it should be pretty easy, but there must be something I've not considered.

Cheers.

Why don't you join the Mortgage-free Wannabe board and start overpaying the mortgage you have? In a year or so you could be in an even better position and you will know what the market is doing. Or start saving up the excess on the rental income towards a deposit, which you will need for the new house.

This is the template the boards use for budgetting, post it up on the MFW board for comments:
http://www.makesenseofcards.com/soacalc.html

missile

This post must be a wind-up, no one could really believe they could get a second larger mortgage with no savings?

We have no savings, but our credit rating should be good. The type of house we want would cost at least £250k - perhaps as much as £275k.